I just turned 60 working in the Oil & Gas industry and I’m about to retire, I have the option to take a lump sum payment or a pension option that will give me a monthly paycheck. Which should I take? If I take the Lump Sum option will I be jeopardizing my retirement peace of mind? Will my Pension be taxed as normal income? In this video, Jessica Cannella will answer all of your questions on the hot debate of lump sum vs pension.
Survivorship Series:
Annuity Education Path:
00:00 Our General Question
00:24 Houston’s Hot Question
01:04 Defined Benefit Pension Plan
01:55 Lump Sum Vs Lifetime Annuity
02:20 Speaking to a Financial Advisor
02:41 Your Decision is Irrevocable!
03:35 Holistic Approach
04:31 Payout Options
05:30 Pension and Flexibility
06:55 Benefits of a Lump Sum Payout
08:00 Lump Sum into an IRA
08:42 Pensions are Taxed as Income!
09:55 Your age and Lump Sum
11:00 Spousal Election
11:45 Survivorship Series
13:05 Lump Sum and Peace of Mind
13:19 PBGC
14:49 Fixed Index Annuity and Lifetime Guaranteed Income
16:13 Let Us Set Up your Retirement Plan!
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More about Jessica Cannella, Co-Founder and President:
As the Co-Founder and President of Oak Harvest Financial Group, Jessica’s mission is clear. Educate, inspire, and financially prepare couples and individuals to enjoy a fearless and fulfilling retirement. With almost two decades of experience in retirement planning, Jessica’s objective is to alleviate the stress around investment management and financial planning.
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As you approach retirement at 60, one of the major decisions you will face is whether to take a lump sum payment or opt for a pension option. This decision can have a significant impact on your financial situation in retirement, so it is important to carefully consider the pros and cons of each option.
If you are offered a $500,000 lump sum payment, you may be tempted to take it and invest the money yourself. This can give you more control over your retirement funds and the opportunity for potential growth. However, it also comes with risks, as you will be responsible for managing and outliving your retirement funds.
On the other hand, opting for a pension option can provide you with a steady stream of income for the rest of your life. This can provide peace of mind and eliminate the risk of running out of money in retirement. The pension option may also come with additional benefits, such as survivor benefits for your spouse.
When making this decision, it is important to consider your personal financial situation, risk tolerance, and long-term financial goals. You should also consider factors such as inflation, taxes, and the potential for investment growth. It may be helpful to consult with a financial advisor to help you weigh the pros and cons of each option and determine which option is best suited to your individual needs.
Additionally, you may also want to consider a combination of both options. You could take a portion of the lump sum and use it to supplement your pension income, providing a balance of stability and potential growth.
Ultimately, the decision of whether to take a lump sum or pension option will depend on your personal preferences and financial situation. It is important to carefully evaluate your options and make an informed decision that will help you achieve a financially secure and comfortable retirement.
Who's yhe black girl from google curiosity ad?
Thank you for posting this helpful video!
It all depends and understand most monthly payments are from an annuity issued by an insurance company your company paid to open up your annuity. So, the liability becomes the insurance company's and NOT the company you worked for.
She completely mistated the PBGC pay out. The amount she quoted is the maximum per year NOT the entire sum
I work for a large HMO and they do offer the annuity with death benefits. They offer a 5,10,15 and 20 year life annuity to a beneficiary of your choice to receive the same pension amount the employee would have received. Of course it is a bit less than a single life annuity with no designated beneficiary, but it is offers a great peace of mind that if one passes away someone will benefit from that pension. Thus it makes it more difficult to make the decision between a lump sum and life time annuity pension.
Take the lumpsum & run!
A divorce and remarriage made that decision for me. My ex gets a slice of my pension yet the new wife gets nothing so, I'll take a partial lump sum and invest it for the new wife.
Very well presented, seemed to cover all the bases. Thanks.
Some city pensions have both, can take a % lump sum and pension for life.
Don’t forget to mention the rule of 55 which may apply. Pay 20% federal tax off top,lessening tax burden come filing time.
Mine was a state pension and there were two options :defined benefit pension plan,and the investment plan. There was a DROP plan, aka a 457B deferred retirement option program,offered to those in the pension plan. I stuck with the pension plan which I claimed upon retirement at 55 ( I’m a retired RN) and claimed Social Security benefits at 62. A nice final lump sum of DROP money and unused time :sick ,vacation ,extended illness, and comp time in addition to the monthly pension which comes with a 3% annual COLA.Worked out well for me.
If you have a spending problem like most people, take the monthly check.
They killed the concept of a pension at my company a year or two after I joined, so I got grandfathered in. That was the good news. The bad news is that its going to pay peanuts. I'll take the lump sum when the time comes.
Hit 200k today. Thank You for all the knowledge
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i have a federal pension which covers all my expenses including health insurance, as a federal retiree we still pay the same premium we paid while working, not touching TSP/IRA, wife also has a small fed pension, taking SS at FRA as I don't need it, wife will take it next year
If your company is a utility company or railroad always take the pension
Thanks for sharing awesome tips! I'm financially free and currently growing a solid retirement plan. It takes a positive and consistency to learn new things, unlearn the old habits is important to get a mentor/coach to lead you all the way.
I took the lump sum because it becomes part of my estate when I die. If I die with a pension, it becomes pension fund managers profit. Amazing how long stocks have done well and pension funds remain underfunded, yet pension fund managers are billionaires. Fees are where real money is made.
I love listening to a smart woman talk to me about money. More from her please.
Great Video. Thank you for posting.
Tell your kids to get state jobs in California (CALPERS) and work for 30 years and make around 80-150 K USD annually for life (no need to take a lump sum)
Helpful discussion, but when making the decision whether to take the lump sum or keep the pension annuity, why no specific discussion about how to evaluate the actual lump sum amount vs the otherwise promised monthly pension payment?
So, as an example, would it be wrong to take that $500,000 lump sum, grow it by some conservative market rate, say 6% for every year until the year the pension would commence paying out. Then multiply that balance by a "safe" withdrawal rate to yield a "pension payment equivalent". To keep the example simple, assume you're retiring next year, so no investment growth on the lump sum payment. Using the common 4% withdrawal rate from retirement funds rule (go lower if you want it to be more conservative), 4% of $500,000 = $20,000/year or a $1,667 "monthly pension payout equivalent".
If you're close to retirement and the promised monthy pension payout is dramatically higher than this estimated "monthly pension payout equivalent:, it might taper your desire to take the lump sum. Especially if you tend to be a risk averse person.
The ONLY reason an employer will offer you a lump sum buyout is to save themselves money in the long run. So as long as your health is decent the answer is pretty simple.